Empirical Study On Financial Development And Income Gap Between Urban And Rural Residents In Chongqing

After reform and opening-up, economy of china has been developing rapidly, and the resident income level has been rising. However, with the coming of well-off society, the income gap of both urban and rural residents has been expanding, and has become a problem appreciated by all social sector, government and the academic community. With the dramatic development of Chinese economy, the income of both urban and rural areas is continuously growing. However, the speed of growth in the per-capita net income of rural people can't compare with that of the per-capita disposable income of urban residents from 1985 to 2006. And the income gap between urban and rural households continues to expand.First, this paper introduces briefly the theories of financial development and income distribution. Traditional economic theories emphasizes the effect of capital, labor, land, technology and resources, while it ignores the monetary and financial effect to economic effect. Financial deepening theory and financial repression theory fill up the deficiency and emphasize the important function of finance to economy development. The core of financial deepening, in order to improve investment efficiency, is to increase the real interest rate, to open the financial market and to cancel the disadvantageous governmental restriction to financial market.Second, this study analyses the current income situation of Chong Qing. When viewed as a whole, the income of urban and rural residents has gone up and is on the rise, but the income gap between urban and rural households has been expending, and it is higher than that of China. In the three economic areas, Ecological Economic Zone in Three Gorges Reservoir Area is one of the area that register the highest income gap of rural residents, while West Chong Qing Economic Corridor is the lowest one.Third, the study makes an empirical research on income gap between urban and rural areas in Chong Qing. According to statistical data from 1985 to 2006 in Chong Qing, this paper studies empirically the relationship between financial development and the income gap in urban and rural areas by using ADF unit root test,Johansen cointegration test and Granger causality tests. The empirical research shows that the income gap between urban and rural areas correlated positively with financial development, but it correlated negatively with fixed asset investment. In other words, the income gap between urban and rural areas is broadened by financial development, and is shortened by improving investment to fixed asset.At last, this paper makes some policy-suggestions. These suggestions involve how to shorten the income gap and to realize harmonious society between urban and rural areas. The current income gap between urban and rural residents is very serious in Chong Qing, and the urgent task is to shorten the income gap. In order to realize the goal, we must improve the material and policy-related condition, and speed up the rural residents'income. Only in the way we can overcome disparities in urban and rural income levels.